The university put $1.7 million in a Guernsey-based private equity firm that had funds investing in companies including Royal Dutch Shell.

According to the Guardian newspaper, the university used complicated arrangements with US hedge funds to help them avoid or "block" US tax.

Cambridge University said its charitable status means it normally does not pay tax and that it had only "negligible" holdings in fossil fuel industries.

But members of Cambridge Zero Carbon Society slammed the Paradise Papers findings saying they revealed the "truth" about the university's investment arrangements.

Cambridge University (Image: Nick Ansell/PA Wire.)

A statement from the society said: "These revelations are absolutely scandalous. That the university has been investing tens of millions of pounds in offshore funds to dodge tax is bad enough. That in doing so it has been investing huge quantities in Shell’s deep-sea oil exploits is outrageous.

"Time and again Zero Carbon have been told that the university has minimal investments in fossil fuel companies. Yet now the truth is clear.”

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A spokesperson said on behalf of the colleges and university: "The colleges and the university are charities and therefore their holdings in investments are tax-exempt in the UK, US and many other countries. This means there is normally no tax to pay.

"The fund arrangement, through which the university and colleges invest, is standard for collective investments of this type. The fund is managed by a highly reputable investment advisor and, as is normal, the adviser makes the decisions about specific investments to be made by the fund."

He explained that a fossil fuel divestment working group was set up by the university council in May 2016 to consider the issue.

The group was engaging with a range of organisations and individuals, as well as holding town hall meetings.

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Outside one meeting tonight (November 9) members of the Cambridge Zero Carbon Society prepared to share their views to the working group.

Eleanor Salter, 21, a third year politics and sociology student, said:"It was not a surprise, but at least it gives us a little more clarity about the sheer quantity of money invested in fossil fuels. It just proves that the working group is delaying divestment.

"Climate change is here, it's real, it's more than just numbers. It's not just figures in a bank. They are helping to further the destruction of the planet. To look for more oil sources is obscene. [Divestment] is something that must occur immediately."

The university spokesman said it had reviewed its investment approach last year and "rejected" full divestment in favour of "active engagement with fund managers".

He added: "The resulting report made clear that the university had no directly held exposure to the most pollutive industries, such as thermal coal and tar sands, and no expectation of having any such exposure in the future.

"In relation to investments managed externally, there were only negligible holdings in these more polluting fossil fuel industries.”